Not done yet: John Neal has major plans for Lloyd’s in Australia
hen former QBE chief executive John Neal took up the top job at Lloyd’s five years ago, the venerable institution was an existential mess. So he turned to staff and stakeholders to hear their views.
They had much to say about the London-based insurance market that wasn’t positive. Regulators were also far from happy with where Lloyd’s was going, and the all-important rating agencies were threatening downgrades.
That all seems a long time ago now, after Mr Neal bit the bullet and initiated an ambitious turnaround strategy. Lloyd’s has got its mojo back, and the market’s managers have big plans for Australia.
It’s early days, but discussions are taking place between Lloyd’s and the major players here, with the aim of going beyond its traditional local coverholder model and adding “meaningful value” through “scale opportunities”.
Lloyd’s had just reported a combined operating ratio of 104.5% when Mr Neal arrived at Lime Street in 2018.
“We were in a tough spot, no doubt about it,” he tells Insurance News. “So we went on quite a journey to get performance back into the shape that it needed to be in.”
That journey included the now fabled “Decile 10” review of the worst-performing 10% of each Lloyd’s syndicate’s book of business – the headline act of a far-reaching move to address what had become an ingrained slump in performance.
The remediation worked. Last year Lloyd’s reported a much-improved combined operating ratio of 91.9%.
But Mr Neal, who was visiting Australia in April for the first time since his stint from 2012 to 2017 as QBE group chief executive, tells Insurance News in an exclusive interview that he’s happy to now be able to focus on more positive projects at Lloyd’s.
“Remediation is quite tedious. Profitable growth though, that is quite exciting.”
That’s where Lloyd’s is now – back to growing, but sustainably. Lloyd’s grew by 19% last year, and plans are signed off for 20% growth this year.
Where will all this growth come from? Mr Neal says he’s a big believer in playing to strengths.
“It’s not about planting flags in new locations where no one knows who you are,” he says. “So let’s double down on where we matter. Let’s double down where people value who we are and what we can do.”
Lloyd’s gross written premium (GWP) last year was £46.7 billion, which Mr Neal estimates represents about 6% or 7% of the available market. He believes that figure could be pushed up to about 10%.
One of those places where Lloyd’s matters is Australia, which is one of the market’s four biggest geographies (the others are the US, UK and Canada). Australian GWP at Lloyd’s rose 22% last year to reach $4.2 billion.
Mr Neal says Lloyd’s is the fifth-largest insurer in the Australian market, and the third-largest in the commercial and corporate sector.
Much of the market’s business in Australia is through the coverholder/underwriting agency model, and while that remains a priority, Mr Neal says there are other exciting discussions taking place that may alter things.
“Where we’ve been trying to take the conversation is trying to work out where we can add value for those that really drive the market.
“So if you’re one of the big three – if you’re QBE or IAG or Suncorp – where can we make a difference for you? If you’re Steadfast or Austbrokers, where can we make a difference for you?
“We’re trying to have bespoke conversations with the players of influence and say, where is the value-add? And I think in each, there is a value-add, but it could be different.
“We see this as a real priority. We don’t see Australia as a backwater – we see it as one of our most valuable markets. We’re growing here, and we see that continuing.”
Mr Neal would not be drawn on precisely what he is hoping these discussions will lead to – but said readers should “watch this space”.
Some industry leaders are concerned there may not be enough capital available to the underwriting sector in future, due to diminishing returns, but Mr Neal does not foresee any particular problems for Lloyd’s.
He says increased volatility isn’t the issue, but investors do require payback for the risk they’re taking.
“There’s nothing wrong with a little bit of volatility,” he tells Insurance News. “We do enough modelling to understand volatility.
“But you’ve got to get your return on equity. It’s got to be running in the teens and we’re beginning to see ROE predictions of 12, 13, 14, 15%.”
The good news, Mr Neal says, is that for the first time in 25 years an underwriter can make money both as an underwriter and by getting a return on assets under management.
“So I think there’s a genuine opportunity to make a return, and our sense at the moment is the investor interest for insurance is there.”
Mr Neal’s listening exercise in 2018 didn’t just single out performance as an area that needed to improve. Lloyd’s strategy also targets digitalisation, culture and purpose.
Addressing the cost of doing business led to a long, hard look at traditional processes at Lloyd’s. This led to the launch of Blueprint Two, an ambitious strategy to deliver “profound change” through digitalisation.
Several reports and roadmaps later, the building phase should be complete this year. Then it’s all about getting the market receptive to change. As previous Lloyd’s leaders stretching back 20 years have found, that’s the hard bit.
Lloyd’s is a very traditional organisation that can trace its beginnings back to a London coffee shop in the 1650s, and Mr Neal says it encounters resistance to change every day.
But now people can see the solutions, and know that they will work, so he believes a “tipping point” has been reached.
“I think we’ve got to be smart over 2024/25,” he says. “We’ve got the right transition plans so that we can respect different people getting to the right answer at different speeds.
“We’ve now got to put all of the energy that you would expect us to in engagement and adoption with brokers and insurers.”
On culture and purpose, Mr Neal is keen to shift the debate to talent, and why people should want to work in insurance.
Lloyd’s has progressed well on meeting its diversity and inclusion targets, after a devastating Bloomberg report early in his tenure revealed historic market issues around sexual harassment.
Women in leadership is up to 32% (the target is 35%), and one in every four new hires comes from an ethnic minority background (the target is one in three).
“You start with diversity, you talk about inclusion, and it should be about talent,” Mr Neal says.
“People should want to be in our industry. It’s about as cool as it gets. I mean, all the problems that society’s got – is it financial, is it climate, is it systemic? We sit as the answer.
“We’ve got to get the cultural fabric right where the talent wants to come and work for insurers.”
Lloyd’s has come a long way in five years, but how does Mr Neal see the next five years unfolding? His answer is succinct: continual change is the key.
“We’ve got to be brave in the way in which we choose to change,” he says. “We’ve got to be prepared to evolve to a way in which we’re more understandable.
“And if we do, I think we’re a value proposition.
“I don’t think any insurer should want to trade exclusively at Lloyd’s. But I think every insurer should see value in having a capability to trade at Lloyd’s. And that’s what we’ve got to create.
“We’ve been prepared to change over the past four or five years. We’ve got to keep up that pace of change to ensure that we remain relevant.”
In March last year John Neal was seriously injured after being knocked off his bike while riding.
But rather than leading to a new outlook on his working life, the near-death experience left the keen cyclist as committed as ever to his career in insurance.
“My left leg was dislocated, ripped and turned the wrong way around, and my pelvis was shattered and I had 13 broken bones,” he tells Insurance News.
Airlifted to hospital in Cambridge, he endured eight-and-a-half hours of surgery. “The end result is I’m back on a bike – much to everyone’s disgust – walking as far as you like, skiing this winter.”
Mr Neal addressed the incident at a Marsh young professionals event in London.
“I put up a picture of my shattered bike, and my pelvis, which is now made of titanium and said, I can’t relate to you guys in your 30s. But what I can tell you is later in your life things do happen that make you take a step back and think about what you want to do.
“I want to be here talking to you, doing what I do for a living. I don’t want to do anything else.
“It certainly does make you stop and think. But rather than make me think, is it all worthwhile, it made me think it’s definitively all worthwhile.”
John Neal believes the days of climate change denial in the insurance industry are over. Now he sees mostly opportunity where resistance once dominated.
“If I put my underwriting hat on, it’s the biggest single opportunity we’ve ever seen,” he tells Insurance News. “The ability to insure transition is remarkable.”
He says insurance matters more than ever, given the challenges the world is facing.
“I think we’re at one of those unusual points where insurance is understood and valued.
“Our macro data is telling us that the penetration of insurance is going to double in the next decade. That’s not happened for 50 years.”
As for insuring Australia’s potentially super-charged natural catastrophes, Mr Neal says it can be done.
“We turn up every day of the week to provide $50 billion of cover against hurricane in the US. Can we provide a fraction of that cover against bushfires, floods, and cyclones in Australia? I think the answer is yes.”
Where it gets tricky, he says, is when consumer affordability starts to become an issue.
“That’s where you kind of do need some state and federal government conversations, and I think the banks have to be involved.
“It’s solvable. But it needs a working party to step right back and say, ok, what different solutions could be applied here?”